Airline competition touches the travel agency industry

ByWendy Gristmacher, Special to The Christian Science MonitorNovember 12, 1980

Boston
— As airline profits hover uncomfortably close to the ground, travel-agent profits seem to be soaring close to the clouds. According to the Air Traffic Conference (ATC), in September 1980 as compared with September 1979, airline traffice was down 10.3 percent. But recent figures show travel agents made a hefty profit gain -- commissions are up 27 percent from September 1979, and up a total of 30 percent in the first eight months of 1980, compared with January through August of 1979.

The 1980 average travel agent commission is 9.3 percent. The 1979 rate was 8 .4 percent. William Jackman, spokesman for the ATC calls this "a rather sizable increase."

This past June marked what some travel agents term a "crucial" Civil Aeronautics Board decision affecting the travel indstry. This decision ruled that the airline industry as a whole would no longer, collectively, be allowed to set a standard commission rate for travel agents. Instead, each carrier is responsible for setting its own rates. And that has meant an increase in percentage commisions.

The decision was part of the CAB move, starting in October 1978, to fr deregulate the airlines. The idea of the Air Transportation and Competition is a sufficient regulator in the airline industry. The help of what big-government critics term "yet another bureaucratic agency" is not needed in this "fiercely competitive" industry.

Travel agents have been affected by airline deregulation. As ticket conduits , travel agents were immediately affected by the changes in routes, fares, and discounts that resulted.

According to Paul Smith, an attorney with the Bureau of domestic Aviation at the CAB, the commission hike resulting from the June deregulation was the first major raise in approximately 10 years.

Many agents say the rise from a 6 to 8 percent commission to one of 6 to 15 percent (depending on fare class, overrides, and carriers) was necessary because the number of customers buying tickets from travel agents, as opposed to buying them directly from the airlines, has risen consistently throughout the past four or five years.

Travel agents are responsible for selling anywhere from 50 to 80 percent of all airline tickets sold in the US and abroad. Most international carriers, such as Lufthansa, Air Canada, or British Airways, do about 80 percent of their american sales through travel agents. Domestic carriers sell closer to half of all tickets -- about $20 billion per year -- through agents. Charles Novak, spokesman for United airlines, says travel agents are United's "No. 1 source distribution."

Most carriers offer special incentives to the agents. For instance, United pays 10 percent for firs-class tickets, 8 percent for coach, and 12 percent for promotional.

and, explains Mr. Novak, travel agents are making more money as a result of the commission boost, and the highter costs of tickets themselves (due to the increase in fuel prices). This explains why despite declining ticket sales and commission rates travel agents have making a better profit.

But there are two sides to this theory, says Curtiss Nabors, president of the American Society of Travel Agents. "Commissions may be up," he says, "but ticket prices are down as all the major airlines scramble to attract the market to their reduced fare flights." The result: The agent that used to get $20 for booking a $200 flight to California gets $10 for the same flight at a reduced ticket price of $100

It is true, Mr. Nabors says, that a majority of ticket prices have risen since fuel pprices took off. But because of deregulation many of the major airlines ave drasticaly discounted their most popular routes -- such as New york to Los Angeles, or New York to Florida. So the routes most commonly handled by agents have considerably lower ticket prices yielding lower commissions.

Mr. Nabors estimates that the actual revenue agents are receiving has only risen from 8.4 percent to 8.7 percent -- in figures considerably lower than the Air Traffic Conference estimtes

Dana Vannae, a member of the national legislative committee of the American Society of Travel Agents and a travel agent in Boston, says his costs are up 34 percent. HE says the CAB is "bending figures" to make deregulation look good. He is quick to assert that many of the praises being heaped on the Carter administration's decision to deregulate the airlines are unfounded.

As he sees it, "Deregulation had very little to do with the commission increase received by agents. Travel agents are automating, like everyone else. And the agents can't automate without additional funding from the airlines."

The airlines realize how advantageous the quicker computer-aided sales are to their business and therefore granted the agents the commission increase. CAB lawyer Paul Smith says, "The airlines are not charitable. Their reasoning is all too clear."

Mr. Vannasse points out that ticket selling has become more complex with the recent fare discounts, contests, and publicity hoopla. Not only are travel agents getting more customers who can't figure outwhat flight is the most reasonable, but it takes agents longer to find their way through the discount maze themselves.

In addition, "People are travelling farther these days -- we are seeing a more sophisticated traveler," says Mr. Vannasse. "One guy called the other day wanting to go to Benghazi, Libya. You can't just hop on a United flight to Benghazi. It takes a lot of connections. This sort of thing can be taken care of on the computer very quickly."

The computer is necessary for cutting down the amount of time per sale. The lowest fare and best customer arrangement is flashed on the screen quickly, allowing the agent more time to take more customers.